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Ruling on Disparate Impact Opens the Door for More Claims and Cases

The Supreme Court’s landmark decision on whether the Fair Housing Act supports the concept of disparate impact in housing discrimination cases is likely to open Pandora’s Box. The 5-4 ruling in June means a run on new and pending claims, housing industry experts say.

In an attempt to clarify a long-standing issue, the high court ruled that someone can be liable without intent to discriminate in Texas Department of Housing and Community Development v. The Inclusive Communities Project, Inc. In the decision, the justices agreed that “recognition of disparate-impact claims is consistent with the FHA’s central purpose, and that “unlawful practices include zoning laws and other housing restrictions that function unfairly to exclude minorities from certain neighborhoods without any sufficient justification.”

The case offered the first opinion on a controversial topic that has concerned the housing industry in recent years. Other cases have been filed but most never saw the courtroom. The Inclusive Communities Project, Inc., sued the Texas Department of Housing and Community Development for awarding more tax credits in low income areas with a high concentration of minorities than in high income areas, and the case went the distance to the highest court.

In his majority opinion, Justice Anthony Kennedy sided with the more liberal justices to find favor with disparate impact. Legal analysts say he offered some safeguards to prevent abuse of the disparate impact theory but tried to narrow the theory such that it confuses what the ruling means.

However, the confusion may not be enough to keep future claims at bay.

More claims may surface with narrowing of disparate impact

Debra Stockton, a senior vice president for LeasingDesk Screening, remembers a few years when disparate impact claims surfaced in Kansas City but soon faded because of the cloud that hung over interpretation within FHA laws. She believes the ruling will cause more cases and claims to surface, and the trend probably won’t go away very soon.

“I expect that things will continue to evolve on this issue, as people continue to digest the opinion and as claims continue to be heard and litigated,” said Stockton, who will moderate a panel on the subject at RealWorld this month. “Unfortunately, this likely means continuing activity and perhaps increased claim activity.”

His concern is that Justice Kennedy’s opinion clouds the issue and will open the door for more cases because of the Court’s attempt to recognize but narrow the definition of disparate impact. There is great uncertainty in how to apply Justice Kennedy’s new rules, Skojec says.

“In a similar vein,” Justice Kennedy wrote, “a disparate-impact claim that relies on a statistical disparity must fail if a plaintiff cannot point to a defendant’s policy or policies causing that disparity.”

The plaintiff must now show more than just a negative impact on minorities. Determining disparate impact, Skojec says, is far too complicated and evolves so many factors that it can’t just be easily whittled down at the beginning of a case as Justice Kennedy suggests judges will now be tasked.

“You can’t just prove that, for example, minorities are being negatively impacted,” he said. “You have to also show exactly what policies are causing that. And, while that’s generally true with any law that you have to prove causation, the way he describes it is much narrower and he suggests that it’s an issue that can be decided at the beginning of a case.”

But as the dissenting opinion says, the plaintiffs will get past the initial motions and defendants will face long litigation.

Disparate impact could take years to play out in courts

Skojec fears that, as the numbers of cases escalate, many could be unfairly concluded without ever getting to the court room. He anticipates a number of claims are waiting in HUD’s cache and will be settled through the agency’s administrative process without receiving consideration of the Supreme Court’s intent in the ruling.

“In those administrative cases, you’re not going to have a judge to apply Justice Kennedy’s safeguards,” Skojec said. “You’re just going to be dealing with a HUD investigator who believes in disparate impact and it’s not going to go away unless you settle it, or incur substantial defense costs.”

Skojec says it could take several years how the laws of disparate impact plays out in the courts. He thinks because it leaves so much room for abuse, as dissenting Justices Clarence Thomas and Samuel Alito offered, it could ultimately be a blow to the housing industry.

Justices Thomas and Alito wrote that Justice Kennedy’s ruling opens the door to a legal liability not intended in the spirit of the 1968 Fair Housing Act. Justice Alito said the ruling was “a serious mistake” and Justice Thomas scribed that the foundation of the ruling “is made of sand.”

‘Do your homework and keep a record’

The narrow vote in itself suggests that future cases of disparate impact are likely to be argued at length in the court system, and future decisions ultimately will shape how the law affects the housing industry.

Skojec says housing providers should educate employees to be sensitive about discrimination, document why decisions are made, and precisely state business reasons and justification for policies and practices. He notes Justice Kennedy’s opinion discussing the need for a business necessity test.

“If the person being sued can show a legitimate reason for what they’re doing and it’s not egregious, then that should be a case more likely to be dismissed,” he said. “Thinking about what you’re doing and document it so you have a record. That’s probably the best advice people have right now until we see how this evolves.”

IMPORTANT: This article includes information relating to legal issues and developments and is for informational purposes only. The contents of this article are not intended, and should not be relied upon, as legal advice. You should contact an attorney for any legal advice relating to these or other legal issues.

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Tim Blackwell is a long-time publishing and printing executive in the Dallas/Fort Worth area who writes about the multifamily housing and transportation industries. He has contributed numerous articles to Property Management Insider, and worked as a newspaper reporter in the D/FW area. Blackwell is president of Ballpark Impressions, and publishes the Cowcatcher Magazine. He is a member of the Fort Worth Chapter/Society of Professional Journalists.

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